Tag Archives: offshore corporation

Hidden Tax Savings in Preparing Form 5471 for the Controlled Foreign Corporation

Form 5471 is full of international tax planning and tax savings.  As you prepare Form 5471, carefully look at the instructions.  They hint at the hidden tax savings. (If this is the first year or a late filing, then please see this link.)

 It is here, hidden in the fine but dull print, that you will find your tax savings.  For example, does your tax preparer know that an offshore corporation acting as a finance company can avoid U.S. taxes?  

Or that a foreign contract manufacturer related party sales are tax-free?

My video below is from an international tax class that I gave to the California Society of CPAs.  If you want to start to save taxes while preparing your Form 5471, then call me, Brian Dooley, CPA, MBT at 949-939-3414.

Foreign Investors Learn Why a Foreign Corporation is U.S. Death Tax Trap

The problem for the non-resident alien is that their estate tax exemption is $60,000 and not $5.3 million (as it is for Americans).   And there is one more problem… the U.S. estate tax planner.  While the U.S. has a tax on the estate, other countries tax the recipient.  This tax is called an “inheritance tax.”

Thus the  American tax planner also must know “international inheritance tax planning” for the foreign country of the investor.

They advise the nonresident alien (the term for estate and gift taxes is “nondomiciled“) to own their U.S. investments and U.S. real estate through a foreign corporation (such as a Panamanian company or a British Virgin Island company).  

Since the 1950’s, this tax plan has failed.  The U.S. courts have ruled for the IRS (more on these cases on this link).  These court cases focused on the power to revoke (section 2038) and the right to the corporate dividends (section 2036).  These tax laws  required the assets owned by the foreign entity to be included in the deceased’s U.S. taxable estate

The best estate tax planning method for the foreign investor involves a trust.   Here is a link on the basics.  In Europe and the United Kingdom have an inheritance tax.  Estate taxes and inheritance differ.  This difference challenges international inheritance tax planners. 
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Section 956 Controlled Foreign Corporation

International tax planning for foreign corporations looks carefully at section 956.  This is the tax law that prevents American companies from investing their foreign profits back into the U.S.

Now, you may wonder “why would Congress passed such a stupid tax law?”.  Well, Congress excels in stupid.  Of course, the President has to approve every new tax law.  So, they share the blame.   The point of this blog is to help you avoid this tax trap.

A foreign tax plan requires U.S. shareholders to have a long term plan.  The income created by section 956 is reported on form 5471.

Section 956 requires shareholders of controlled foreign corporations (CFC) to recognize dividend income if the profits are invested in “United States property.”  The investment in U.S. property creates the taxable dividend.

If you would like to brainstorm your tax planning ideas, then please call me, Brian Dooley CPA, at 949-939-3414 for a complimentary consultation with your CPA or get me easy to read international tax book at Amazon.

I rewrote the law in the format of a simple to use equation. Placing the code into an equation simplifies the law.  You can learn more with my book at Amazon.  Try any of my books on international taxation and planning for a week risk-free.  You will find section 956 explained in easy terms.

If you are interested in exploring international tax strategies for your business, I invite you to email me, Brian Dooley, CPA, at [email protected]

 

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Great Tax Savings using the New IRS Regulations on Debt versus Equity

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President John Kennedy (Democrat) is the most respected president of last century. The President and Supreme Court Justice Hand agreed that patriotism does not mean paying more than your legal share.
Supreme Court Justice Holmes said tax planning means you get as close to that legal line as possible.

If you were a tax nerd, like me, you would have read many many articles on the new IRS section 385 regulations (debt versus equity transactions).  Nobody like change and that applies to most tax planners.   But for every action, there is an equal reaction.

While corporate tax planning will be more complex with these regulations, small business tax planning is improved.

 This blog looks at shifting income and wealth by valuing a promissory note.  For estate tax planning, you want the note to have a low value.

For small business income tax planning, you want the note to have a high value or a low value. In the example below,  the note had a low value.  
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Bitcoin Tax Planning and Savings with Offshore Tax Planning

offshore tax planning, bitcoin tax planning, cfc, foreign corporation, controlled foreign corporation, offshore corporation, offshore tax planning,

Bitcoin tax planning works great with International tax planning.

Bitcoin tax planning is intriguing and powerful because?  Here is why.

A Bitcoin is not a currency.  Why?  A government is needed for a currency to exist.  Bitcoin prides itself in no government intervention.  So, what is it?

A Bitcoin is a type of private money.  You can learn about other private money tax planning and savings on this link.    Private money is a contract.  My favorite private money is Disney money.

I live in Orange County close to Disneyland.  For Christmas, my children loved Disney money with its cute pictures of Donald Duck or Snow White.   Disney money is a contract between Disneyland the owner (the bearer) of the paper money.

For example, I prepare your tax return.  I get paid $100 in Disney money.  For me, it is worth $100 because I can go the Disneyland anytime.  However, the value is not fixed. For example,  I travel to Nebraska and lose my wallet.  I find  $100 of Disney money in my jacket.   I am hungry, so I go into the cafe.  Nebraska is far from Orange County.  There my Disney money bought me two eggs, toast, and sausage.  It was worth $10.

My loss is a capital loss because my contract with Disneyland is a capital asset.  Same with your Bitcoin.  It is merely a contract.  However, the big questions what about a controlled foreign corporation (CFC) as the owner.  International tax planning for the Bitcoin investor has some big tax savings when you use a foreign corporation.

Certain investment income earned by a CFC is taxable to the shareholder.   However, the sale of a contract is not one of those types of income.  The exception is if you purchased the Bitcoin or sold the Bitcoin to a related person.

Remember to file the IRS information return Form 5471.  This is a controlled foreign corporation information return.

Would like to do some more brainstorming?  Then please call me, Brian Dooley CPA, MBT for a free brainstorming consultation at 949-939-3414.